Apple Boom in China

When I go to China, either with my family or on my own, I do so for two reasons:

First, I go for some rest and recreation. And for me, that’s not seeing the sights. Instead, I prefer to spend my vacation time studying Mandarin.

I skip the tourist spots, stay with a host family that speaks no English, and take classes in a little school where I feel I can really be challenged — by eight-year-old classmates who are, needless to say, invariably more advanced than I am.

Second, I go to China to better understand the dynamics of how its consumer economy impacts the U.S. companies doing business there.

Consider, for example, the line in the picture to the left. It was one of the longest I had ever seen or heard of. It snaked around several city blocks. It required dozens of police to control the crowd.

And fortunately, unlike 2014’s recent New Years’ Eve festivities held 665 miles to the south, in Shanghai, there was no fatal stampede. But the excitement in the air was tangible.

I’m talking about the line outside the Apple store in Beijing for one of its newest releases.

That was a while back. But the frenzied demand for Apple products in China hasn’t slowed down. In fact, it is accelerating — one of the pivotal reasons why, in the most recent quarter, Apple delivered results that blasted past Wall Street expectations.

Sounds easy when you say it. But beating Wall Street’s earnings estimates for Apple is no simple feat.

Remember: Apple is probably the single most closely followed, carefully scrutinized, ruthlessly dissected company in the world. So it takes a truly monumental wave of new, unexpected demand to consistently surpass Wall Street expectations.

By now, you’ve heard the headline news, I’m sure. What I want to add today is one of the single most important numbers that’s likely to continue powering Apple to surpass even some of the more optimistic Wall Street forecasts.

I’m not talking about the fact that Apple reported revenues of $74.6 billion. You probably know that already.

Nor am I talking about how they sold a whopping 74.5 million iPhones — 12 million more than expected. You probably know that too.

The crucial number I want you to focus on is $16.1 billion.

That’s the dollar amount of sales that Apple pulled in from China in the quarter — a whopping 157% increase from the previous quarter and a 70% increase compared to a year earlier.

In other words, it was largely thanks to China that Apple reported its largest profit in its history.

Now pay close attention to this part: This past quarter marked the first time EVER Apple has risen to THE #1 spot in China’s smartphone market.

I can’t emphasize enough how important it is to be #1 in China.

In fact, for years, Apple had failed to take that slot, dropping all the way to sixth place for market share — behind Huawei, Lenovo, Samsung, Xiaomi and Yulong.

Why? Because despite their love for iPhones, a large segment of Chinese — Yuppies and non-Yuppies alike — wanted larger screens.

And until last year, they could only get those from Apple’s competitors.

What made the big difference this year was very simple: As you know, the screens on Apple’s new iPhone 6 — and even more so on the iPhone 6-Plus — are larger.

That turned out to be the number one spark that lit a fire under sales in China. And they took off like a rocket.

It’s also the key to unlocking even bigger sales in the coming quarters: With an estimated 1.2 billion mobile phones in China, Apple has barely scratched the surface of the Chinese smartphone market.

Is the Wall Street crowd aware of this?

To some degree, perhaps.

But I don’t think most analysts understand China like we do. They continually underestimate the mass psychology. Few have immersed themselves in the culture.

Here’s the key: In China, appearance, “face” and fashionable style are critical aspects driving demand for premium brands — not just for smartphones, but also for clothing, liquor, cars, tennis shoes, watches, and more.

This includes my Mandarin teachers, some of which do earn high incomes.

For them and hundreds of millions of consumers in China, “cheap” simply doesn’t cut it — even if cheap comes with relatively good quality!

They insist on the best-quality food. Plus there are certain brands they cannot do without.

That’s the huge advantage Apple has, and that’s why the iPhone still has years of fast sales ahead of it in China.

And don’t forget about other upcoming Apple products to be launched with great branding fanfare for hundreds of millions of anxious Chinese buyers: The new version of the iPad. The Apple Watch. And much more to come.

In my Ultimate Portfolio, which is driven largely by my Weiss Stock Ratings, I own Apple shares, and I have no plans to sell them.

I also keep plenty of money stashed in cash with a watchful eye on threats to the stock market. Those have not gone away and probably never will. But they don’t stop me from making money in the meantime, and I don’t think they should stop you either — regardless of what might be happening in China.

Good luck and God bless!

Martin

Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recesssion and Depression.

{12 comments }

BryanMonday, February 9, 2015 at 8:26 am

I have to cancel your service and requet that you take me off your mailing list. Thank you.

BryanMonday, February 9, 2015 at 8:27 am

Please cancel your newsletter Than you.

jrj90620Monday, February 9, 2015 at 11:38 am

I wonder how much better things can get for Apple.Congratulations on those who bought this stock cheaper,but maybe time to sell and move on,when it seems like things can’t get much better.Goes for Disney and others,too.

zeeeeMonday, February 9, 2015 at 1:41 pm

Maybe you should stay there if things are so good. You obviously are unAmerican and bordering on traiterous behaviour.

zeeeeTuesday, February 10, 2015 at 9:07 am

Your unAmerican post bothered me so much that I’ve forwarded your article to an FBI contact for further “investigation”. Have a nice day.

retired worker fedSaturday, February 14, 2015 at 10:49 am

This is an analysis and not a political statement.
also, he likes to do certain things on a vacation. That does not make him a traitor or unamerican. Relax and enjoy what you do.
I have no idea on whether he is right or wrong on his Apple analysis. It makes sense, but who knows.

G L BaileySaturday, February 14, 2015 at 11:29 am

Zee: What on this earth are you referencing to make a silly comment as that. Martin is simply providing a good report on a great company. Nothing Un-American is given. You are totally out of context. Why don’t you just say thank you and go and invest most of the money you can raise into Apple? I am sure the FBI had a very big laugh if you are stupid enough to even submit that drivel to that organization. Now Carpe Diem and get yourself together; quit speaking and removing all doubt.

VERY WELL WRITTENMonday, February 9, 2015 at 9:15 pm

Congratulations on another interesting and thoughtful piece on a rising economic power.
I am puzzled as to why this piece appeared in my Junk file and no where else?
As a long time Mac fan, this is most puzzling.
If, as a subscriber, I missed the opportunity to buy or increase a holding IF your recommendation states HOLD do I put in a BUY?

PeggySaturday, February 14, 2015 at 2:02 pm

We bought Apple a few years ago when we saw the long lines at the Apple Store. Thank goodness we did; and I’m pleased to see that you’ve added this stock to the Ultimate Portfolio. A good friend once told me to invest in the things you know and watch what others are buying. This seems to hold true; therefore, I’m a bit concerned with the amount of “A” rated stocks that have been bought and sold in the Ultimate portfolio. I realize this is not a buy and hold strategy but am puzzled with the amount of trades. I enjoy getting my feet wet and learning the jargon associated with the trades and you are very thorough with your explanations, but in the final analysis, will have to see how this process is working for us.

donaldSaturday, February 14, 2015 at 6:11 pm

When one considers the shoddy food quality, the additon of chemicals to milk, etc. The Chinese consumer is sick and tired of shoddy products. Have been to China over 10 times and I bring vitamins from Costco and the receipients are over whelmed with the knowledge that they are pure and not filled with junk. They do not trust the local labels and like all educated people, they want quality and truth. Its simple about Apple products, because they bring consistent quality and its a status symbol. Many in China rent their homes and most do not have a car so the Apple smart phone becomes their status symbol. Apple understands this but most Americans do not. They are bringing up the poor with opportunity while we in America are bringing up the poor with food stamps and give aways. Our country is doomed because they have many working while we have less than 50% working. Our president represents the lazy and non workers who live off the workers.

Bob MunroSunday, February 15, 2015 at 10:08 am

Good article . I read on drudgereport that Apple is working on an electric car . Do you have any info ?

jay birdMonday, February 16, 2015 at 12:37 am

Zeeee you must be bordering on hysteria . How could you possibly call Martin Weiss unamerican. Ridiculous..